Posted on July 15, 2016
When it comes to corporate restructuring, communication is key to a successful outcome for all parties.
When a struggling company hits pause and files to restructure under the Companies’ Creditor Arrangement Act (CCAA), it’s seldom a surprise. In almost every case, creditors, suppliers, employees, analysts, media and the broader community have seen the emergency flares signalling financial distress for some time.
Nevertheless, when it finally reaches the point where payments are suspended, and a court-ordered monitor is appointed to oversee the restructuring process, it invariably—and quickly—gets messy.
Companies need to proactively contain that mess by developing and executing a strategic communications plan even before a formal CCAA filing is made.
Why? Incumbent management is often left scrambling to balance the demands of an ongoing, but hobbled, operation with a simultaneous restructuring. Evading the threat of personal liability, the board of directors often resigns en masse, just when their experience and guidance is needed most.
The court sessions that frame the restructuring process frequently turn into brawls over the priority and entitlement of competing groups. It all gets more heated when banking syndicates that provide short-term debtor-in-possession financing are involved: the strictures they impose on companies and their creditors often incite outrage.
This swirl of fear, greed and confusion adds a volatile and potentially disruptive element to the proceedings. Social media enflames that by allowing anxious stakeholders to amplify their grievances and spread the word.
The final ‘plan of arrangement’ must be approved by a number of parties before it can be implemented. That means a communications strategy that manages expectations, corrects misinformation and builds support among factions is often imperative to success, and to the future of the company.
Just as the monitor is an independent third party with a clear mandate, so too should the lead communications advisers be from outside the company. Outsiders are unencumbered by pre-existing relationships and are therefore better positioned to say and do things that may affect post-restructuring relations.
It is essential that there be close collaboration between the outside communications advisers and the company’s corporate communications team, especially for understanding internal and external stakeholder history and context. For example, in cases where the workforce is unionized, the company’s insight is essential, but it can be a big advantage to have an outside team manage the file, free—but still respectful—of the established employer-employee dynamic.
An effective restructuring communications strategy maps and leverages the points where stakeholder interests intersect, providing management with specific target areas for winning support.
It also takes into account the need to customize messages to fit specific agendas. Suppliers who are awaiting past and future payment must be persuaded to keep goods and services flowing to the company. They want to be assured that steady progress is being made, as do customers who need to know there will be no disruption in their supply chain. The message to unionized workers may be rather less upbeat, giving them what they need to know in order to consider contract and other concessions.
The demands of financial restructuring often lead to faltering internal communication. Efforts on that front need to be redoubled to bolster morale, sustain productivity and retain talent at a time of uncertainty. Furthermore, companies with sales forces and a number of other external-facing points, need to ensure that employees are confident and well-coached in explaining the situation and pivoting to a brighter future.
That same communications strategy must also foster broader community and government support. Preserving jobs and fostering growth is essential to the long-term health of local, regional and national economies, especially at a time of economic contraction.
It is also important to align the interests of the company with those of elected politicians. If the company clearly articulates its plan and provides regular updates, politicians can become powerful advocates for the broader policy changes upon which financial restructurings frequently rely, especially where new buyers or owners are in the mix.
Financial restructurings are as unique as the businesses that undertake them. Within the prescribed legal framework of the CCAA, their success is determined by a number of variables, from global markets to union locals. Strategic communication is one of those variables. But unlike all the others, it is one a company can—and must—control.